IR 7G
March 2012w
Partnership and
look-through company
(LTC) return guide
2012
Read this guide to help you fill in your IR 7 return.
Complete and send us your IR 7 return by 7 July 2012,
unless you have an extension of time to file.
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PARTNERSHIP AND LTC RETURN GUIDE
Contents
Introduction
How to get our forms and guides
Questions
10
11
12
13
14
15
16
17
18
19
20
22
24
25
Schedular payments
New Zealand interest
New Zealand dividends
Māori authority distributions
Income from another partnership
Income from another LTC
Overseas income
Business income
Rental income
Other income
Loss from a loss attributing qualifying
company (LAQC)
Expenses
Deduction for losses extinguished on
transition from a QC or LAQC
Distribution of income/losses
Page
3
3
4
4
4
6
8
9
10
11
14
14
15
18
18
19
21
Completing your IR 7L or IR 7P
Boxes
25A
IRD number
25B to 25I Share of income/losses
25J
Total income
25K
Proportion of profits/losses
Blue Box
Deduction for extinguished losses
25L
Non-allowable deductions (IR 7L only)
25M to 25O Share of tax credits
21
Example of the LTC loss limitation rule
26
Disclosure
Privacy
25
34
34
Services you may need
ACC levies
Need to talk to us?
Customer service quality monitoring
If you have a complaint about our service
35
35
36
36
36
21
21
22
22
22
23
25
www.ird.govt.nz
Introduction
Read page 4 of your IR 7 2012 return for the following
information:
• who must file an IR 7 return
• filing your IR 7 return online
• return due date
• completing page 1 of the IR 7 return
• nil returns.
Use this guide to help you complete pages 2–3 of your
IR 7 2012 return. The questions in this guide follow the
same numbering as your IR 7 return.
For more information on look-through company (LTC)
rules, read our Look-through company guide (IR 879).
How to get our forms and guides
You can view copies of all our forms and guides by going
to www.ird.govt.nz and selecting “Forms and guides”.
You can also request copies by calling 0800 257 773.
Remember to have your IRD number with you when
you call.
The information in this guide is based on current tax
laws at the time of printing.
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PARTNERSHIP AND LTC RETURN GUIDE
Questions
Question 10 Schedular payments
If the partnership or LTC has received schedular payments,
we’ll send you a Summary of earnings (SOE), detailing the
payments received and the tax deducted.
From your SOE, copy the total tax deducted into Box 10A
and gross payments into Box 10B.
The SOE may not contain all your earnings information.
If any details are missing, please include them at
Question 10.
If the partnership or LTC is registered for GST, your gross
schedular payments should not include any GST. If they
do, show the gross payments at Question 10 and deduct
the GST portion at Question 22.
Question 11 New Zealand interest
Include interest from all New Zealand sources at
Question 11.
The interest payer will usually send you an RWT
withholding certificate (IR 15), or similar statement,
showing the gross interest paid and the amount of RWT
deducted.
Write the total of all RWT deducted in Box 11A.
Add up all the gross interest amounts (before the
deduction of any tax) and write the total in Box 11B.
Note
If expenses are deductible against the interest income
(eg, commission), claim them at Question 22. Read the
note about expenses on page 18.
Don’t send in any interest statements or IR 15 certificates
with your return, but keep them in case we ask for them
later.
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5
Interest on broken term deposits
If you’ve broken a term deposit during the year, you may
have to account for “negative interest”. This is interest
repaid on a term deposit and may reduce the amount of
interest to declare in your return.
If the term deposit was broken in full, or it was business
related, deduct the negative interest from the gross
interest shown on the IR 15 or equivalent statement.
Deduct the allowable negative interest component, using
the worksheet below, before entering the gross amount at
Question 11 of your return. In all other cases, the negative
interest is deductible in a future income year when the
term deposit matures.
Worksheet
Copy your gross interest
from your RWT on interest
form to Box 1.
1
Print any negative interest
you’ve paid in Box 2.
2
Subtract Box 2 from Box 1
and print the answer in
3
Box 3.
Copy this amount to Question 11 of your tax return.
Interest paid or charged by Inland Revenue
If we paid you interest, include it in Box 11B for the
income year the partnership or LTC received the interest.
If the partnership or LTC paid us interest, include it as a
deduction in Box 22 of the return for the income year the
interest is paid. Read about expenses on page 18.
Interest from overseas
If the partnership or LTC received interest from
overseas, convert your overseas interest and tax credits
to New Zealand dollars and show the amounts at
Question 16. Please read the notes about overseas
income on pages 11 to 13.
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PARTNERSHIP AND LTC RETURN GUIDE
Income from financial arrangements
If the partnership or LTC was a party to a financial
arrangement, such as government stock, local authority
stock, mortgage bonds, futures contracts or deferred
property settlements, you may have to calculate the
income or expenditure from the financial arrangement
using a spreading method, rather than on a cash basis. To
work out if you must use a spreading method, please read
“Financial arrangements” on pages 16 to 18.
If the financial arrangement matures, is sold, remitted or
transferred, you must do a “wash-up” calculation, known
as a base price adjustment.
Any RWT will be deducted on a cash basis. Show the
RWT deducted and any income from the financial
arrangement in Boxes 11A and 11B.
Question 12 New Zealand dividends
Dividends are the part of a company’s profits that it
passes on to its shareholders. Unit trusts are treated
as companies for income tax purposes and unit trust
distributions are treated as dividends.
Complete Question 12 if you received any New Zealand
dividends, including dividends from your local electricity
or gas supplier. Don’t include a dividend that’s a
distribution of the trust’s capital and is tax free. The
company or unit trust that paid you the dividend will
send you a dividend statement.
Don’t send in any dividend statements with your return,
but keep them in case we ask for them later.
Note
If expenses are deductible against dividend income
(eg, commission), claim them at Question 22. Read
about expenses on page 18.
www.ird.govt.nz
Credits attached to dividends
A New Zealand company or unit trust may attach several
types of credits to dividends.
“Imputation credits” are credits for part of the tax the
company has already paid on its profits, which means the
dividends aren’t taxed twice.
“Payment for a foreign dividend” is the credit for tax the
company paid on dividends it received from overseas.
RWT is deducted from your dividend to bring the total
credits withheld up to 33% of the gross dividend.
What to show in your return
Your dividend statements show the amount:
• you received (net dividend)
• of any imputation credits
• of any RWT totals or payment for foreign dividends.
Add all these amounts together to work out your total
gross dividends and enter this in Box 12B.
Add up all the imputation credits and print the total
in Box 12. Add any dividend RWT deducted and any
payments for foreign dividends and print the total in
Box 12A.
Shares instead of dividends
If the partnership or LTC received shares instead of
dividends, include them as income at Question 12. Write
the amount as if you received dividends instead of shares.
Dividends from overseas
Please read about overseas income on pages 11 to 13 of
this guide.
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PARTNERSHIP AND LTC RETURN GUIDE
Question 13 Māori authority
distributions
Māori authorities can make various types of distributions.
Fill in Question 13 if you received any taxable Māori
authority distributions. The Māori authority that paid
you the distribution will send you a Māori authority
distribution statement.
Credits attached to distributions
The Māori authority may attach a credit to the
distribution it makes to members. This credit will be
classified as a “Māori authority credit”. It is usually part of
the tax the Māori authority has already paid on its profits,
which means the distributions aren’t taxed twice.
What to show in your return
Your Māori authority distribution statement shows the
amount of:
• the distribution made to you, including what portion
is taxable and what portion is non-taxable
• Māori authority credit.
Transfer these amounts, leaving out any non-taxable
distributions, to the relevant boxes at Question 13.
Example
A Māori authority makes a pre-tax profit of $10,000.
It pays tax on this profit of $1,750 (Māori authority tax
rate of 17.5%) and distributes the entire profit to their
10 members. Each member will receive $825 by way of
a cash distribution and $175 of Māori authority credits.
Each member of the authority who has to file an
IR 7 return would show the following information in
Question 13:
Box 13A – $175
Box 13B – $1,000 (made up of $825 + $175)
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Non-taxable distribution
You don’t need to include in the IR 7 return any other
distributions received from a Māori authority that aren’t
taxable in the hands of a Māori authority member. These
amounts are non-taxable distributions and can’t have
credits attached.
For more information read our Māori authority guide
(IR 487).
Question 14 Income from another
partnership
If the partnership or LTC received any income or loss from
another partnership, write the details at Question 14.
Don’t include any:
• interest and RWT—show these at Question 11
• dividends, imputation credits, and dividend RWT—
show these at Question 12
• Māori authority distributions and credits—show these
at Question 13
• overseas income and any credits attached—show
these at Question 16, see pages 11 to 13
• rental income—show this at Question 18, see pages 14
and 15
• other passive income—show this at Question 19, see
pages 15 to 18
• losses attributed from an LAQC—show these at
Question 20, see page 18.
Add up all the other income from partnerships and
include the total in Box 14B. If a loss, put a minus sign in
the last box.
Add up any other tax credits and include the total in
Box 14A.
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PARTNERSHIP AND LTC RETURN GUIDE
Question 15 Income from another LTC
If the LTC received income from another LTC, write the
details at Question 15.
Note
A partnership does not receive income or deductions
from an LTC. If two or more people jointly receive
income or deductions from an LTC, they should show
these on their own returns, not the partnership’s return.
Don’t include any:
• interest and RWT—show these at Question 11
• dividends, imputation credits, and dividend RWT—
show these at Question 12
• Māori authority distributions and credits—show these
at Question 13
• overseas income and any credits attached—show
these at Question 16, see pages 11 to 13
• rental income—show this at Question 18, see pages 14
and 15
• other passive income—show this at Question 19, see
pages 15 to 18
• losses attributed from an LAQC—show these at
Question 20, see page 18.
Add up all the other income from LTCs and include the
total in Box 15B. If a loss, put a minus sign in the last box.
Add up any other tax credits and include the total in
Box 15A.
LTCs are transparent (looked through), meaning the
owners are treated as having received the income and
incurred the losses of the company.
Losses from an LTC are subject to a loss limitation rule.
This limits the deductions an owner can claim to the
amount of their investment in the LTC (the “owner’s
basis”). For this reason, any deductions incurred by
the LTC must be allocated to the owners and identified
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separately. See Box 25L “Non-allowable deductions” on
pages 23 and 24 for more information about the loss
limitation rule. There is an example of the loss limitation
rule on pages 25 to 33.
Add up any non-allowable deductions from LTCs and
include the total in Box 15C. Add Boxes 15B and 15C and
put the total in Box 15D, this is the adjusted LTC income.
Question 16 Overseas income
If the partnership or LTC received overseas income
eg, interest or financial arrangements, show this at
Question 16.
Convert all overseas income and qualifying overseas tax
paid to New Zealand dollars. You can do this by:
• using the rates available on www.ird.govt.nz
(keywords: overseas currencies)
• using the mid-month telegraph buying rates in our
leaflet Conversion of overseas income to New Zealand
currency (IR 270)
• contacting the overseas section of a trading bank and
asking for the exchange rate for the day you received
your overseas income.
Tax paid overseas is distributed to the partners or
owner(s) and the tax credit limit is calculated on the
partner’s or owner’s income tax return. Staple proof of
any overseas tax paid to the top of page 3 of the IR 7.
If the income was received from a financial arrangement,
please read our Tax Information Bulletin (TIB), Vol 20, No 3
(April 2008).
Foreign investment fund (FIF) income or losses
If at any time during the 2012 income year the partnership
or LTC held rights like shares, units or an entitlement to
benefit in any foreign company, foreign unit trust, foreign
superannuation scheme or foreign life insurance policy,
the partners or owner(s) may be required to calculate
FIF income or loss in their own income tax return(s).
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PARTNERSHIP AND LTC RETURN GUIDE
Generally, the partners or owner(s) will use the fair
dividend rate to calculate FIF income. The partners or
owner(s) may also need to file an additional FIF disclosure
form. See Question 26 on page 34.
The main exclusions from an interest in an FIF are:
• investments in certain Australian resident companies
listed on approved indices on the Australian
stock exchange, that maintain franking accounts.
Investments covered in the list are available in the
Australian share exemption list (IR 871)
• interest in certain Australian unit trusts
• limited exemptions for interest in:
–– Guinness Peat Group plc (final year of exemption)
–– certain venture capital interests that move offshore
(for 10 income years from the income year in which
the company migrates from New Zealand)
• a 10% or greater interest in a CFC
• an individual or trustee of certain trusts, who is a
partner or owner and holds, at all times in the income
year, FIFs with a total cost of $50,000 or less.
You can find more information on the exclusions and
the FIF rules at www.ird.govt.nz/toii/fif and in our
Tax Information Bulletins (TIBs)—see the online index for
relevant issues.
Controlled foreign company (CFC) income or losses
If at any time during the 2012 income year the partnership
or LTC has attributed CFC income or loss, the partners or
owner(s) may be required to calculate this in their own
income tax return(s).
Losses from a CFC can’t be used to offset domestic income
or be included in domestic losses that are carried forward
to the 2013 income year. Generally, these losses can only
offset income or future income from CFCs that are resident
in the same country as the CFC that incurred the loss.
The partners or owner(s) may also need to file an additional
CFC disclosure form. See Question 26 on page 34.
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Overseas dividends
There are two situations covering the treatment of
overseas dividends. Each owner or partner will need to
determine which of the following applies to their share of
foreign investments:
• If the shares are required to have FIF income or loss
calculated, don’t include any dividends paid from
these shares on the IR 7 return. Instead, show the
calculated FIF income or loss at Box 16B.
• If the shares are covered by one of the FIF exclusions
(see pages 11 and 12), show the dividends at Box 16B.
Each owner or partner will need to advise their individual
amount of either the FIF income or loss (or their FIF
calculation method) or the dividend, to be included on
the IR 7 return. Show each owner’s or partner’s individual
amount, plus any other allocation of overseas income, at
Box 16B on the IR 7 return and at Box 25E on the IR 7L or
IR 7P form—see page 21. This information is also used in
determining the income amount at Box 4 on page 23 of
this guide.
In either situation, include any qualifying overseas tax
credits attached to the dividends at Box 16A. Some
Australian dividends can have New Zealand imputation
credits attached. Include these at Box 12. Please note you
can’t claim Australian franking credits. If the partnership
or LTC received dividends from an overseas company
through an agent or trustee who deducted RWT in
New Zealand or dividends treated as interest, show the
New Zealand RWT deducted at Box 12A.
Note
If you’ve shown an imputation credit in Box 12 or
an RWT credit in Box 12A and there is no income
associated to these in Box 12B, you’ll need to attach a
note to the top of page 3 of your return with the details.
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PARTNERSHIP AND LTC RETURN GUIDE
Question 17 Business income
Write the net profit or loss in Box 17B. This is the amount
of income or loss after deducting all allowable business
expenditure. If this is a loss, put a minus sign in the last box.
Refer to our Smart business (IR 320) guide for information
on allowable business expenditure and record keeping.
Attach one of these to the top of page 3 of your return:
• a set of the partnership’s or LTC’s financial accounts
• a completed Accounts information (IR 10) form
• a completed Farming income (IR 3F) form or Schedule
of business income (IR 3B) form.
If you complete an IR 10, which speeds up the processing of
the return, you don’t need to send us your financial accounts
as well, but keep them in case we ask for them later.
Attribution rule
Anyone who provides services and puts an intermediary
between themselves and the recipient of the personal service
has income earned allocated to them, not the intermediary.
If this rule applies to persons associated to your
partnership or LTC, it will affect the amount of taxable
income in this return.
When applying the attribution rule, LTCs are treated as
associated entities and not as being transparent.
To find out how to apply this rule, please read our Tax
Information Bulletins (TIBs), Vol 12, No 12 (December 2000),
Vol 13, No 11 (November 2001), and Vol 21, No 8 Pt 2
(October/November 2009).
If you need more information, please call us—see page 36.
Question 18 Rental income
Write the net profit or loss (total rents minus expenses) in
Box 18B. If this is a loss, put a minus sign in the last box.
Refer to our Rental income (IR 264) guide for information
on allowable rental expenses and record keeping.
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Attach one of these to the top of page 3 of your return:
• a set of the partnership’s or LTC’s financial accounts
• a completed Accounts information (IR 10) form
• a completed Rental income (IR 3R) form.
Question 19 Other income
If you invested capital in a partnership or LTC but didn’t
take an active part in the day-to-day operation or
management of the business, this is considered passive
income, enter this at Question 19. Don’t enter it here if
you’ve already included it at another Question on your
return.
Also at Question 19 show any other income the
partnership or LTC received, eg, sale of:
• land and/or buildings
• non-FIF shares or other property
• securities.
If the partnership or LTC received any of the income listed
above, please read the following.
Income from sale of land and/or buildings
Profits from the sale of land and/or buildings are taxable if
the partnership or LTC:
• buys a property for the purpose or intention of resale
• buys and sells land and/or buildings as a business
• trades as a builder and improves a property before
selling it
• develops or subdivides land and sells sections
• has a change of zoning on its property, and sells it
within 10 years of buying it.
Write the details of any sales on a separate sheet of paper
and attach it to the top of page 3 of the IR 7. Include the
taxable profits in Box 19B.
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PARTNERSHIP AND LTC RETURN GUIDE
Income from sale of non-FIF shares or other property
Profits from the sale of shares and other property are
taxable if the partnership or LTC buys:
• and sells shares or other property as a business
• shares or other property for resale
• shares or property to make a profit.
List the details of gross income and expenses from these
sales on a separate sheet of paper and attach it to the top
of page 3 of your IR 7. Include the total profits in Box 19B.
Selling or disposing of assets
If the partnership or LTC sold or disposed of a depreciated
asset for more than its adjusted tax value, you may need
to account for depreciation recovery. You can use the
depreciation calculator on our website www.ird.govt.nz
to get a complete depreciation schedule for any asset.
The schedule includes the amount to claim in the year
of purchase and any adjustment in the year of sale. For
further information please read Depreciation – a guide for
businesses (IR 260), and either Depreciation rates (IR 265)
or Historic depreciation rates (IR 267).
Losses from sale of land, buildings, shares or other
property
If the partnership or LTC has made a loss and you can
show that if the partnership or LTC had made a profit it
would have been taxable, the partnership or LTC may be
able to claim the loss as an expense. Include the total loss
at Box 19B.
Write the details of the loss on a separate sheet of paper and
attach it to the top of page 3 of your IR 7. Include details
of other profits or losses made from similar sales, whether
in this tax year or earlier.
Financial arrangements
A partner or owner must account for income from
financial arrangements on an accrual basis. Financial
arrangements include government stock, local authority
stock, mortgage bonds, futures contracts and deferred
property settlements.
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Changes to the rules for the treatment of financial
arrangements have split the rules into two sets. Generally,
the first set applies to financial arrangements entered into
before 20 May 1999 and the second applies to financial
arrangements entered into, on or after that date.
Both sets of rules require the income or expenditure to be
spread over the term of the financial arrangement. Both
sets of rules allow some exceptions from these spreading
provisions if the partner or owner is a cash-basis holder
(under the first set of rules), or a cash-basis person (under
the second set of rules).
The partner or owner is a cash-basis holder if, before
20 May 1999:
• they held financial arrangements of $600,000 or less in
value, or
• the income derived from the financial arrangements
was $70,000 or less, and
• the difference between the person’s gross income
calculated under the cash basis and that calculated
under the accrual method is no more than $20,000.
The partner or owner is a cash-basis person if, from
20 May 1999:
• the value of all financial arrangements added together
is less than $1 million, or
• the absolute value (the value no matter whether it’s
a positive or a negative figure) calculated under the
accrual rules in the income year from the financial
arrangement is less than $100,000, and
• in comparing the gross income and expenditure using
a spreading method under the accrual rules with the
cash basis income and expenditure, the result is less
than $40,000.
To determine whether the partner or owner is a cash-basis
holder or cash-basis person, they must take into account
their share of the financial arrangement, or their share
in the gross income or expenditure under the financial
arrangement the partnership or LTC is a party to.
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PARTNERSHIP AND LTC RETURN GUIDE
Sale or maturity of financial arrangements
Whether or not the exemption from the spreading
methods applies, when a financial arrangement matures,
is sold, remitted or transferred, you must do a “wash-up”
calculation, known as a base price adjustment. The
calculation ensures the total gains or losses from the
financial arrangement are accounted for.
If you need any information about calculating a base price
adjustment, please call us on 0800 443 773.
Question 20 Loss from a loss attributing
qualifying company (LAQC)
From the beginning of the income year starting on or
after 1 April 2011, LAQCs can no longer attribute losses to
their shareholders. Only LAQCs with early balance dates
(before 31 March) will be able to attribute losses for the
2012 income year.
If the partnership is a shareholder in an LAQC, write any
attributed losses in Box 20B.
Special rules apply if the attributed loss included a loss
from a CFC or an FIF. If you don’t know how to offset this
loss, please call us on 0800 377 774.
Question 22 Expenses
The partnership or LTC may have incurred expenses in
generating its income, for example:
• commission deducted from interest and dividends
• expenses for return preparation
• interest paid to Inland Revenue for late payment of tax
in the income year it is paid.
If the expenses have not already been claimed in the
return, print the amount in Box 22.
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Question 24 Deduction for losses
extinguished on transition from a QC
or LAQC
If the partnership or LTC had losses which were
extinguished on transitioning from a QC or LAQC, each
owner or partner is allowed a deduction for an amount
equal to the amount given by the following formula. Note
– this is limited to the partner’s or owner’s share of net
partnership or net LTC income for the year:
(Loss balance extinguished – prior years’ deductions)
x partnership share or owner’s effective interest
Loss balance extinguished is the loss balance extinguished
on transition from a QC or LAQC. If it includes foreign
losses please call Inland Revenue on 0800 377 774 to make
sure they are accounted for correctly.
Prior years’ deductions is the total amount of deductions
for extinguished losses allowed in previous income years
for all persons with a share in the partnership, or an
effective look-through interest in the LTC. If this is the
first year deductions have been claimed for extinguished
losses, the amount will be zero.
Work out the maximum allowable deduction for each
owner or partner using the calculation tables on page 20.
Boxes 1 to 3 only need to be completed once. Use the
resulting figures for all owners or partners.
Boxes 4 to 9 must be completed for each owner or
partner using their information from the IR 7L or IR 7P.
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PARTNERSHIP AND LTC RETURN GUIDE
Loss balance extinguished
(copy this figure to Box 24
on the IR 7)
1
Prior years’ deductions
(copy this figure to Box 24A
on the IR 7)
2
Subtract Box 2 from Box
1 and print the answer in
Box 3.
3
If the answer in Box 3 is zero, no further deductions for
extinguished losses can be claimed by the owners or
partners, if it is greater than zero, continue below.
Copy the total income figure
from Box 25J on the IR 7L or 4
IR 7P to Box 4
For LTC owners, copy any
non-allowable deductions
from Box 25L on the IR 7L
to Box 5
Add Boxes 4 and 5 and print
the answer in Box 6.
5
6
If Box 6 is a loss, the owner or partner isn’t entitled to a
deduction this year, if it isn’t a loss, continue below.
Enter the owner’s effective
interest or partner’s
partnership share in Box 7
as a decimal amount
(eg, 40% share = .40)
Multiply Box 3 by Box 7 and
print the answer in Box 8.
7
8
Print the amount from either Box 6 or Box 8, whichever is
the lesser, in Box 9 below. This is the maximum deduction
for the owner or partner.
Maximum deduction
9
Copy the amount from Box 9 to the blue Box (Deduction
for extinguished losses) on the IR 7L or IR 7P form.
Add up the maximum deductions for all owners or partners
and print the answer in Box 24B of the IR 7 return.
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Question 25 Distribution of income/
losses
All income, losses and tax credits must be allocated to
the partners or owners in proportion to their share in the
partnership or LTC.
At Question 25 tick which entity the income/loss details
are attached for.
• For partnerships, complete the IR 7P to provide
distribution details for all partners.
• For LTCs, complete the IR 7L to provide the
distribution details for all owners.
Show the details for each partner or owner on the relevant
form. If there are more than four partners or owners use
additional IR 7P or IR 7L forms. You can print them from
our website www.ird.govt.nz as you need them.
Attach all IR 7P or IR 7L forms to the top of page 3 of your
IR 7 return.
Completing your IR 7L or IR 7P
Boxes
Box 25A IRD number
Print the partner’s or owner’s IRD number. If you don’t
know their IRD number you will need to contact them to
request it.
Boxes 25B to 25I Share of income/losses
Print the partner’s or owner’s share of:
• interest (from Question 11) in Box 25B
• dividends (from Question 12) in Box 25C
• Māori authority distributions (from Question 13) in
Box 25D
• overseas income (from Question 16) in Box 25E
• rental income (from Question 18) in Box 25F
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PARTNERSHIP AND LTC RETURN GUIDE
• other passive income (from Question 19 minus any
relevant expenses at Question 22) in Box 25G
• all other income and expenses (not already included in
Boxes 25B to 25G) in Box 25H
• LAQC loss (from Question 20) in Box 25I.
Box 25J Total income
Print the total of all Boxes 25B, 25C, 25D, 25E, 25F, 25G,
25H and 25I in Box 25J. If a loss, put a minus sign in the
last box.
Note
The totals of all partners’ or owner(s)’ Box 25Js must
add up to the IR 7 income or loss shown in Box 23. If
they don’t, it will take us longer to process your return.
Box 25K Proportion of profits/losses
Show the proportion of profits or losses the partner or
owner is entitled to as a percentage of the total. Write
percentages as four-digit numbers, eg, show 15% as 15.00.
For LTCs, effective look-through interest determines each
owner’s allocation of income or losses from the LTC.
Each owner’s effective look-through interest is measured by:
• the percentage of decision-making rights carried by
their shares in the company in relation to dividends or
other distributions
• the company’s constitution
• a variation of the company’s capital
• directors’ appointments or elections.
Please read our Look-through companies guide (IR 879) if
you need further information.
Blue Box Deduction for extinguished losses
See instructions on pages 19 and 20 of this guide.
www.ird.govt.nz
23
Box 25L Non-allowable deductions (IR 7L only)
The loss limitation rule ensures that the deductions
claimed reflect the level of an owner’s economic loss in
the LTC. The “owner’s basis” refers to the adjusted tax
book value of an owner’s investment in the LTC. The
deductions an owner may claim are restricted if the
overall deductions exceed the owner’s basis in the LTC.
There is an example of the loss limitation rule on pages
25 to 33.
Note
For each owner calculate their owner’s basis and
any non-allowable deductions using the tables on
pages 23 and 24. Please read page 17 of our Lookthrough companies guide (IR 879) before calculating
the owner’s basis. It explains the terms used in the
following calculation. If you are required to calculate
FIF income, please make sure you use the 2012 version
of the IR 879, which is available online. If there is more
than one owner, complete the tables on pages 23 and
24 for each owner separately.
Calculate the owner’s basis here:
Investments
1
Distributions
2
Subtract Box 2 from Box 1
3
Income
4
Add Boxes 3 and 4
5
Deductions
(from previous tax years)
6
Subtract Box 6 from Box 5
7
Disallowed amounts
8
Subtract Box 8 from Box 7
9
24
PARTNERSHIP AND LTC RETURN GUIDE
If Box 9 is a negative amount it means the owner has
negative equity in the LTC and their owner’s basis will be
treated as nil. Print “0.00” in Box 9.
When the owner’s basis has been calculated you can work
out if there is any limitation on the deductions claimable
for each owner. If the owner’s basis is more than their
share of the deductions, there will be no limitation and
you won’t need to complete Box 25L.
Please note—deductions refer to all the deductions
claimed against gross income from the LTC from all
sources. For example, if the LTC has a rental property, all
the deductions claimable against the rental income will be
included in the total deductions figure, as well as expenses
incurred in producing income from all other sources.
If the deductions are more than the owner’s basis you
will also need to calculate the following:
Share of total deductions
(expenses)
1
Owner’s basis
(from Box 9 on page 23)
2
Subtract Box 2 from Box 1
3
If the amount in Box 2 is more than Box 1, print “0.00”
in Box 3. The amount in Box 3 is the non-allowable
deductions.
Any deductions an owner can’t claim because of the loss
limitation rule are carried forward and may be claimed
in future years, subject to the application of the loss
limitation rule in those years. Owners may only use
these deductions against income from the LTC. These
amounts are shown in the owners’ personal returns as
non-allowable deductions. They are added to the LTC
income and the result shown as adjusted LTC income.
The adjusted LTC income will be the amount the owner
includes in their taxable income.
www.ird.govt.nz
25
Boxes 25M–25O Share of tax credits
Print the partner’s or owner’s share of all tax credits in the
appropriate Boxes 25M–25O.
Example of the LTC loss limitation rule
The following details are for XYZ Ltd which is an LTC:
IRD number
12–345–678
Total gross income
$6,000
Expenses/deductions$10,000
Loss
$4,000
One shareholder/owner: ABC Ltd(100%)
IRD number
910–111–213
ABC Ltd’s owner’s basis
$1,000.00
(Note: ABC Ltd is also an LTC)
Calculate the non-allowable deductions for ABC Ltd:
Share of total deductions
(expenses)
1
1 0,000 00
Owner’s basis
(from Box 9 on page 23)
2
1 ,000 00
Subtract Box 2 from Box 1
3
9,000 00
Box 3 is the non-allowable deductions
26
PARTNERSHIP AND LTC RETURN GUIDE
XYZ Ltd’s IR 7L would look like this:
Look-throu
income/los
•
•
Read pages 21 to 33 of the IR7 guide before completing this
Complete this form and attach it to the top of page 3 of the
Look-through company
(LTC) name
IRD number
Owner’s name
IRD number
XYZ
L t d
(8 digit numbers start in the second box.
ABC L t d
25A 9 1 0 1 1 1 2 1 3
Share of income/losses
Interest – if a loss, put a minus sign in the last box
25B
Dividends
25C
Māori authority distributions
25D
Overseas income – if a loss, put a minus sign in the last box
25E
Rental income – if a loss, put a minus sign in the last box
25F
Other passive income – if a loss, put a minus sign in the last box
25G
All other income (not already included at Boxes 25B to 25G)
– if a loss, put a minus sign in the last box
4 0 0 0 0 0
25H
–
LAQC loss
–
25I
Owner’s name
IRD number
25A
Share of income/losses
Interest – if a loss, put a minus sign in the last box
www.ird.govt.nz
27
ugh company (LTC)
ss distribution
IR 7L
March 2012
2012
s form.
e LTC’s IR 7 income tax return.
1 2 3 4 5 6 7 8
)
Total income (sum of Boxes 25B to 25I) – if a loss, put a minus
sign in the last box
25J
Proportion of profits/losses (see page 22 of the guide)
25K
1 0 0 0 0
Non-allowable deductions (see pages 23 to 33 of the guide)
25L
9 0 0 0 0 0
Deduction for extinguished losses (see page 22 of the guide)
Share of tax credits
Overseas tax paid
25M
Imputation credits
25N
Other tax credits
25O
Total income (sum of Boxes 25B to 25I) – if a loss, put a minus
sign in the last box
28
14. Did the partnership or LTC receive any income from another p
at Questions 11,
12, 13, 16, 18,AND
19, 20)
PARTNERSHIP
LTC RETURN GUIDE
Go to Question 15.
Y
No
Total partnership tax credits
ABC Ltd’s
IR 7 return Question 15 would look like this:
14A
T
15. Did the LTC receive any income from another LTC? (Exclude an
16, 18, 19, 20)
Go to Question 16.
Y
No
Total LTC tax credits
15A
Total active LTC income—if a loss, p
15B
Non-allowable deductions
15C
A
1
16. Did the partnership or LTC receive any income from overseas?
Y
The adjusted
in Box 15D
Go to Question
17. ($5,000) is then
No LTC income
distributed
to
ABC
Ltd’s
owners
and
shown on the IR 7L
Total overseas tax paid
form attached
their
return.
16A
T
ABC
details
are: from business activ
17.Ltd’s
Didshareholders/owners
the partnership or LTC receive
income
Harry (50%)
No
Sarah (50%)
IRD18.number 141–516–171
Go to Question
Y
IRD number 81–920–212
N
Harry’s owner’s basis
Sarah’s owner’s basis
$2,000
$0
18. Did the partnership or LTC receive income from rental activitie
Y
ABC Ltd’s adjusted LTC income is effectively calculated by
Go to Question 19.
No
subtracting its allowable deductions ($1,000) from XYZ
Ltd’s gross income ($6,000). Harry and Sarah compare
their share of the $1,000 deductions ($500 each) to their
owner’s basis to calculate any non-allowable deductions
they may have.
2
N
partnership? (Exclude any income/losses received you have included
www.ird.govt.nz
Yes
29
See page 9 of the guide. Print the totals here.
Total partnership income—if a loss, put a minus sign in the last box
14B
ny income/losses received you have included at Questions 11, 12, 13,
Yes
See pages 10 and 11 of the guide. Print the totals here.
put a minus sign in the last box
4 0 0 0 0 0
–
9 0 0 0 0 0
Adjusted LTC income (add Boxes 15B and 15C)—if a loss, put a minus sign in the last box
15D
Yes
5 0 0 0 0 0
See pages 11 to 13 of the guide. Print the totals here.
Total overseas income—if a loss, put a minus sign in the last box
16B
vities?
Yes
See page 14 of the guide. Print the total here.
Net income from business activities—if a loss, put a minus sign in the last box
17B
es?
Yes
See pages 14 and 15 of the guide. Print the total here.
Net income from rental activities—if a loss, put a minus sign in the last box
18B
30
PARTNERSHIP AND LTC RETURN GUIDE
Harry’s share of the adjusted LTC income is $2,500. His
share of the deductions ($500) is less than his owner’s
basis ($2,000), so he doesn’t have any non-allowable
deductions (Box 25L).
ABC Ltd’s IR 7L details for Harry would look like this:
Look-throu
income/los
•
•
Read pages 21 to 33 of the IR7 guide before completing this
Complete this form and attach it to the top of page 3 of the
Look-through company
(LTC) name
IRD number
ABC
L t d
(8 digit numbers start in the second box.
Owner’s name
H a r r y
IRD number
25A
1 4 1 5 1 6 1 7 1
Share of income/losses
Interest – if a loss, put a minus sign in the last box
25B
Dividends
25C
Māori authority distributions
25D
Overseas income – if a loss, put a minus sign in the last box
25E
Rental income – if a loss, put a minus sign in the last box
25F
Other passive income – if a loss, put a minus sign in the last box
25G
All other income (not already included at Boxes 25B to 25G)
– if a loss, put a minus sign in the last box
25H
2 5 0 0 0 0
LAQC loss
25I
Owner’s name
–
www.ird.govt.nz
31
ugh company (LTC)
ss distribution
IR 7L
March 2012
2012
s form.
e LTC’s IR 7 income tax return.
9 1 0 1 1 1 2 1 3
)
Total income (sum of Boxes 25B to 25I) – if a loss, put a minus
sign in the last box
25J
Proportion of profits/losses (see page 22 of the guide)
25K
50 0 0
Non-allowable deductions (see pages 23 to 33 of the guide)
25L
Deduction for extinguished losses (see page 22 of the guide)
Share of tax credits
Overseas tax paid
25M
Imputation credits
25N
Other tax credits
25O
Look-throu
income/los
Sarah’s share of the adjusted LTC income is $2,500. Her
32
PARTNERSHIP AND LTC RETURN GUIDE
share of the deductions ($500) are more than her owner’s
• Read pages 21 to 33 of the IR7 guide before completing this
basis ($0.00), so her allowable deductions are limited to
• Complete this form and attach it to the top of page 3 of the
this amount. This means her non-allowable deductions
areLook-through
$500.
company
(LTC) name
ABC
IR 7L details for(8Sarah
wouldstart
look
like
this:box.
digit numbers
in the
second
IRDLtd’s
number
Owner’s name
IRD number
S a r a h
25A
8 1 9 2 0 2 1 2
Share of income/losses
Interest – if a loss, put a minus sign in the last box
25B
Dividends
25C
Māori authority distributions
25D
Overseas income – if a loss, put a minus sign in the last box
25E
Rental income – if a loss, put a minus sign in the last box
25F
Other passive income – if a loss, put a minus sign in the last box
25G
All other income (not already included at Boxes 25B to 25G)
– if a loss, put a minus sign in the last box
25H
2 5 0 0 0 0
LAQC loss
25I
Owner’s name
Both Harry and Sarah will show the income from ABC
Ltd
innumber
their personal IR 3 returns
25A at Question 19 “Did you
IRD
receive
any
look-through
company
income?”. Harry won’t
Share of income/losses
have
any non-allowable
will. This
Interest
– if a loss, put adeductions,
minus sign inbut
theSarah
last box
means Sarah’s adjusted LTC income from ABC Ltd will be
25B
$3,000 and she will be able to carry forward the $500 nonDividends
allowable
deductions to the next year.
25C
Māori authority distributions
–
ugh company (LTC)
ss distribution
www.ird.govt.nz
IR 7L
33
March 2012
2012
s form.
e LTC’s IR 7 income tax return.
)
Total income (sum of Boxes 25B to 25I) – if a loss, put a minus
sign in the last box
25J
Proportion of profits/losses (see page 22 of the guide)
25K
50 0 0
Non-allowable deductions (see pages 23 to 33 of the guide)
25L
5 0 0 0 0
Deduction for extinguished losses (see page 22 of the guide)
Share of tax credits
Overseas tax paid
25M
Imputation credits
25N
Other tax credits
25O
Total income (sum of Boxes 25B to 25I) – if a loss, put a minus
sign in the last box
25J
Proportion of profits/losses (see page 22 of the guide)
25K
Non-allowable deductions (see pages 23 to 33 of the guide)
34
PARTNERSHIP AND LTC RETURN GUIDE
Question 26 Disclosure
If the partnership or LTC has an interest in a FIF or CFC,
the partners or owner(s) may be required to complete
an additional disclosure form for their investments. Full
details of the disclosure requirements are available in the
May issue of our Tax Information Bulletin (TIB) each year.
FIF and CFC disclosure forms are available on our website
www.ird.govt.nz
Privacy
Meeting your tax obligations means giving us accurate
information so we can assess your liabilities or your
entitlements under the Acts we administer. We may
charge penalties if you don’t.
We may also exchange information about you with:
• some government agencies
• another country, if we have an information supply
agreement with them
• Statistics New Zealand (for statistical purposes only).
If you ask to see the personal information we hold about
you, we’ll show you and correct any errors, unless we have
a lawful reason not to. Call us on 0800 377 774 for more
information.
For full details of our privacy policy go to www.ird.govt.nz
(keyword: privacy).
www.ird.govt.nz
35
Services you may need
ACC levies
Under the Injury Prevention, Rehabilitation, and
Compensation Act 2001, Inland Revenue is required
to provide earnings information to the Accident
Compensation Corporation (ACC). ACC uses the
information to invoice all ACC levies.
The amount liable for ACC levies is based on the partners’
or owners’ share of the partnership or LTC income
derived from personal effort (ie, “active”) declared in the
individual partners’ or owners’ IR 3 income tax returns.
Partners’ or owners’ wages
Regular salaries or wages paid by the partnership or LTC
to partners or owners have already had earners’ levy
accounted for in PAYE withheld. ACC will invoice the
partnership or LTC for other levies.
For more information
If you have any questions about ACC or levies, please
go to ACC’s website www.acc.co.nz/productslevies or
contact the ACC Business Service Centre.
Phone
Fax
Email
0800 222 776
0800 222 003
business@acc.co.nz
36
PARTNERSHIP AND LTC RETURN GUIDE
Need to talk to us?
You can call us on these numbers:
General tax, tax credits and refunds
Employer enquiries
General business tax
Overdue returns and payments
0800 227 774
0800 377 772
0800 377 774
0800 377 771
We’re here to take your call between 8 am and 8 pm
Monday to Friday, and Saturday between 9 am and 1 pm.
If you have an IRD number, remember to have it with you
when you call.
For more information go to www.ird.govt.nz (keywords:
contact us).
Customer service quality monitoring
As part of our commitment to providing you with a
quality service, we record all phone calls to and from our
contact centres. Find out more about this policy or how
to access your recorded information at www.ird.govt.nz
If you have a complaint about our
service
We’re committed to providing you with a quality service.
If there’s a problem, we’d like to know about it and have
the chance to fix it. You can call the staff member you’ve
been dealing with, or if you’re not satisfied, ask to speak
with their team leader/manager. If your complaint is still
unresolved you can contact our Complaints Management
Service. For more information go to www.ird.govt.nz
or call us on 0800 274 138 between 8 am and 5 pm
weekdays.
If you disagree with how we’ve assessed your tax, you
may need to follow a formal disputes process. For more
information, read our factsheet, If you disagree with an
assessment (IR 778).